Snaring Net Profits

If you limit tillage, control costs and follow a marketing plan, you're likely making more net profit than most farmers. Those are three of the traits that high-profit producers tend to share.

Soybean Digest asked a university agronomist, a farm business consultant and an ag lender to list the traits they see in the highest-profit 15-20% of farmers they work with. We asked what these producers are doing with production practices, input purchasing, machinery inventory, family spending and marketing methods.

Let's look first at production. For 16 years, the University of Wisconsin (UW) has sponsored a contest for corn and soybean growers called Profits Through Efficient Production (PEPS). “It emphasizes efficiency and profitability rather then yield alone,” explains UW agronomist Joe Lauer. “The objective is to recognize the practices used by the most profitable farmers, and to provide others with insight into ways those farmers integrate practices into a system.”

One factor that stands out in the PEPS competition is that top-profit farmers use tillage sparingly, says Lauer.

Take corn production in a recent year, for example. Of the 20% of farmers in the top-profit group, 78% used minimum tillage (at least 30% residue after planting) or no-till. Twenty-two percent chisel plowed. Among the bottom 20%, profit-wise, only 33% used minimum-till or no-till, 56% chiseled and 11% moldboard plowed.

“The top 20% averaged 4.3 trips per corn crop,” Lauer reports. “That includes planting and harvesting. The other two trips could be a tillage pass and spraying.”

“They soil test, and then they apply only as much nutrient as needed, using the cheapest form of nutrient available. Also, they plant early and at relatively high populations. That's 26,000-30,000 on light soils and 28,000-32,000 on medium to heavy soils.”

Mike Heiser, Fairbury, IL, a consultant with the Illinois Farm Business Farm Management Association (FBFM), also sees a payback for reduced tillage.

“Top-profit farmers are production innovators,” he notes. “For example, many of them were among the first to use strip-till in corn production.” Strip-till combines the benefits of tillage and no-till without the major limitations of either.

Heiser says high-profit farmers tend to grow more specialty crops, such as seed corn, seed soybeans and high-oil corn, all of which bring premiums.

Banker Rick Brantner, vice president of ag credit at the Amcore Bank of Dixon, IL, believes that higher-income farmers are timely in all phases of field work. “For example, some are now geared to plant both corn and soybeans simultaneously and early,” he says. “They plant in mid-to-late April or early May. And they are ready to apply herbicides before weeds become competitive.”

Brantner says most high-profit farmers are no-tilling soybeans.

“They also are out scouting their fields so they can either head off problems or at least respond to them while they are still treatable,” he adds.

High-profit farmers know all their costs and therefore know where they can reduce those costs without sacrificing net return, says UW's Lauer.

“They really study the products and packages that each company is offering,” says Brantner. “And when they decide which products to buy, they take advantage of volume discounts.”

Top-income farmers also avoid paying high cash rents,” notes Heiser of FBFM. “They are able to get moderate rates because they keep landowners well informed on input costs, yields, crop prices and overall profitability. They're in continual contact with owners so owners know the relationship between the cash rent being paid and the income the farm generates.”

Heiser says high-profit farmers hold down family living costs. “They watch their pennies and that makes a world of difference. High family living costs seem to be a major problem for most lower-profit farmers.”

(An FBFM statewide summary showed that total average family living expenses in 2001 for 2,715 farm families, mostly grain operations, was $48,098. That consisted of $43,215, or $3,601/month, for non-capital costs and another $4,885 for capital items such as automobiles, furniture and household equipment. The operators of those farms averaged 50 years of age, with an average of 3.3 family members.)

Machinery-wise, high-profit farmers are well enough equipped to stay timely without being out of line on total equipment costs, Heiser notes.

Amcore's Brantner says top-income farmers he sees don't necessarily have more or newer equipment than anybody else. But they do hold down costs by paying cash for a higher percentage of their machinery.

Both Brantner and Heiser point out that, in their experience, marketing is one of the key factors that separate high-profit farmers from the rest.

“Higher-income producers develop marketing plans and then have the discipline to stick with it,” Brantner says. “But they also keep reviewing their plans so they can make needed adjustments if changing conditions call for it.”

Most pre-price a percentage of their crop, starting in January or February before planting, if there are good pricing opportunities, says Brantner. “They stay on top of the market and they do some pricing when the market gives a signal.”

Heiser says top marketers are aggressive forward pricers — a strategy that is effective in most years. “They tend to have market advisers and they do follow the advice,” he adds. “'High-profit producers rarely have unpriced old-crop grain beyond March unless there are very unusual conditions.”